01—Abstract
Summary
Summary of the 10-K/A filed October 21, 2016. Cited figures are marked; the original filing is the authoritative source.
Costco Wholesale Corporation's 2016 10-K filing highlights a year of modest sales growth, primarily driven by new warehouse openings, while comparable sales remained flat.
The company navigated external pressures such as currency fluctuations and declining gasoline prices, which impacted reported sales and margins. Despite these challenges, Costco demonstrated resilience through a 4%a increase in membership fee revenue, underscoring the strength of its subscription model.
The company also continued its strategic expansion, opening 29 net new warehouses globally. Profitability saw a slight decrease due to the aforementioned factors and investments in information systems modernization and employee compensation, but the core business operations, particularly merchandise, showed underlying strength with a gross margin improvement when excluding gasoline impacts.
02—Key points
Key Highlights
- Net sales increased 2% to $116.1 billion, driven by new warehouse openings, while comparable sales were flat.
- Membership fee revenue grew 4% to $2.6 billion, a key driver of profitability, with high renewal rates of 90% in the U.S. and Canada.
- The company opened 29 net new warehouses in 2016, an increase from 23 in 2015, indicating continued global expansion.
- Gross margin percentage increased by 26 basis points, partly due to the impact of gasoline price deflation on net sales.
- Selling, General, and Administrative (SG&A) expenses as a percentage of net sales increased by 33 basis points, largely due to investments in information systems modernization.
- Net income decreased slightly by 1% to $2.35 billion ($5.33 per diluted share), impacted by currency fluctuations and other factors.
- Costco approved a quarterly cash dividend increase from $0.40 to $0.45 per share in April 2016.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2016, Costco Wholesale Corp kept $0.02.
- Revenue$118.72B100.0%
- Cost of revenue−$102.90B86.7%
- Gross profit$15.82B13.3%
- Operating costs−$12.15B10.2%
- Operating income$3.67B3.1%
- Interest, other & tax−$1.32B1.1%
- Net income$2.35B2.0%
Where FY2016 revenue went
$118.72B- Cost of revenue: $102.90B, 87% of revenue
- Net income: $2.35B, 2.0% of revenue
- SG&A: $12.07B, 10% of revenue
- Interest, other & tax: $1.32B, 1.1% of revenue
Kept 2.0% as net incomeNet income $2.35B · 2.0%Interest, other & tax $1.32B · 1.1%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-K/AFY2016filed October 21, 2016Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $118.72B$116.20B | +2.2% |
| Cost of Revenue | $102.90B$101.06B | +1.8% |
| Gross Profit | $15.82B$15.13B | +4.5% |
| SG&A Expenses | $12.07B$11.45B | +5.4% |
| Operating Income | $3.67B$3.62B | +1.3% |
| Interest Expense | $133.00M$124.00M | +7.3% |
| Net Income | $2.35B$2.38B | −1.1% |
| EPS (Basic) | $5.36$5.41 | −0.9% |
| EPS (Diluted) | $5.33$5.37 | −0.7% |
| Shares Outstanding (Basic) | 438.58M439.45M | −0.2% |
| Shares Outstanding (Diluted) | 441.26M442.72M | −0.3% |
05—Questions
Frequently Asked Questions
What were the primary drivers of Costco's sales growth in fiscal year 2016?
Sales growth in fiscal year 2016 was primarily driven by the addition of new warehouses opened in 2015 and 2016. Comparable sales, which track sales from existing warehouses, remained flat, indicating that growth was more reliant on physical expansion than on increased sales at established locations.
How did currency fluctuations and gasoline prices affect Costco's financial performance?
Changes in foreign currency exchange rates negatively impacted net sales by approximately $2.7 billion and earnings per share by $0.24. Similarly, a 19% decrease in the average price of gasoline negatively impacted net sales by approximately $2.2 billion. While these factors reduced reported sales figures, they also had mixed effects on gross margin and SG&A expenses.
What is the outlook for new warehouse openings and capital expenditures?
Costco opened 29 net new warehouses in fiscal year 2016 and planned to open up to 31 new warehouses in fiscal year 2017. Capital expenditures were around $2.65 billion in 2016, with an expectation to spend approximately $2.6 billion to $2.8 billion in fiscal 2017, primarily for new and remodeled warehouses, information systems, and working capital.
How is Costco managing its costs, particularly SG&A expenses?
Costco's SG&A expenses as a percentage of net sales increased by 33 basis points in 2016. This rise was largely attributed to investments in information systems modernization, including increased depreciation, and higher stock compensation expenses. The company also noted higher payroll and employee benefit costs, such as healthcare, in the U.S.
06—Continue